The Budget 2026 : Property & Infrastructure

The government is increasing the property income tax rates by 2%.

The new rates will apply across England, Wales, and Northern Ireland. Scotland and Wales will also have the ability to set property income rates in line with their current income tax powers.

This will be implemented on top of the 2% increase announced at Autumn Budget 2025 and will take effect from 6 April 2027.

From 2027 to 2028, the rates will be:

The OBR projects that the increase is estimated to raise £0.4 billion a year from 2028-29.

However, the OBR also points out that these increases could lead to a steady rise in rents through two factors:

• First, the OBR suggests that potential landlords will be less likely to enter the market (and more likely to leave it), resulting in demand outstripping supply, and
• Second, landlords are more likely to pass on more of these costs to renters in the long run.

One of the lesser-anticipated tax measures in the budget was the announcement of changes to the taxation of sovereigns, such as heads of state, sovereign wealth funds, and overseas public pension schemes.

Broadly, sovereigns will now be treated as normal non-UK tax-payers, making them subject to the UK's non-resident capital gains tax (NRCGT) rules on the disposal of UK real estate) unless they satisfy the requirements for being state-operated overseas pension funds.

Further, in an effort to balance this measure with support for sovereign capital in the UK real estate market, the government is planning to introduce, for those qualifying for 'sovereign tax status', "bespoke access to a REIT structure which will enable them to hold a controlling interest in a REIT through a UK company while benefiting from a 15% tax rate on property income distributions."

For more detailed analysis on this important development, see our coverage for Private Capital.

The Budget has announced some changes to the capital allowances regime

First year allowance increased from 40% to 50%

The 40% first year allowance was an accelerated tax relief introduced in Autumn Budget 2025.

Broadly, the relief allows certain businesses to deduct 40% of the cost of qualifying expenditure in the year the asset is acquired. leased assets. There is no limit on the amount of expenditure which can qualify for this allowance.

The first-year allowance is particularly useful for unincorporated businesses, including sole traders and partnerships, who are not eligible for full expensing of 100% (as they are not within the charge to corporation tax).

Budget 2026 increases the rate of relief from 40% to 50%for expenditure incurred on or after 1 January 2027.

Main rate writing down allowance

The corollary of the increase from 40-50% was an announcement of a reduction to the main rate capital allowances writing-down allowance (WDA) from 14% to 12%. The reduction takes effect from 1 April 2027 for Corporation Tax and from 6 April 2027 for Income Tax.

The reduction in the WDA rate is likely to impact businesses with large brought forward main pool balances, who will suffer a lower rate of relief yearly going forward (recovering these costs over a longer period). However, because the investments have already been made, changing the writing down allowance rate is unlikely to impact future investment decisions.

The OBR projects the combined package will raise an average of more than £1bn per year from 2027-28 – one of the largest revenue raising measures announced in the Budget – with the WDA reduction contributing the bulk of that yield.

As part of a "significant package" aimed to strengthen "the UK's AI security and accelerate AI adoption across the economy", the government announced the new "Data Centre Covenant", setting out five tests that data centres are expected to meet in exchange for enhanced government support.

A draft National Policy Statement for Data Centres (NPS-DC) was also published for consultation and embeds the five Covenant tests as planning assessment criteria within the new Nationally Significant Infrastructure Project (NSIP) consent regime for the construction of large data centres.

The government's messaging was that storing data 'in the UK' is critical to protect our national interest. In terms of capacity, it was estimated that to protect "our national interest, ensuring that we remain in the conversation internationally and benefit from secure access to AI models locally, [the UK] will require 6GW of AI data centre capacity by 2030".

The Data Centre Covenant sets out five tests which data centres are encouraged to meet (or required to meet for "strategic" data centres seeking enhanced government support):

1. Lower electricity bills: Data centres should pay for their fair share of energy, covering any energy costs they create as well as should support grid resilience, flexibility and clean power.
2. Invest in improving local communications: Strategic data centres should agree a 'Local Benefit Plan' committing substantial investment in the local community.
3. Adhere to the highest environmental standards: Protect nature, minimise water use, publish annual energy and water consumption reports, and capture waste heat wherever practical.
4. Create jobs, apprenticeships and drive reindustrialisation: Prioritise UK suppliers and technologies and contribute to British AI hardware development.
5. Strengthen Britain's security: Provide secure and reliable compute, and work with national technical authorities (including the National Cyber Security Centre (NCSC) to enhance cyber and hybrid resilience.

The Covenant's tests are also included as assessment criteria within the NPS-DC against which the Secretary of State must evaluate NSIP applications.

Meeting the Covenant tests unlocks access to the new Ministerial Control Centre, a new body existing to speed up planning for most strategic data centres and which will use new powers to deliver specific support:

• Reserve and reallocation connections to prioritise strategically important projects and help them access grid capacity more quickly;
• Identify additional capacity;
• Accelerate connections before 2030, and
• Enable access to temporary Behind-the-Meter power.

Following the Autumn Budget 2025 announcement, the government confirmed it will introduce legislation in the Finance Bill 2026-27 to establish the High Value Council Tax Surcharge (HVCTS) (also known as the "Mansion Tax").

The HVCTS will be an additional charge for residential properties in England which are worth £2m or more. Pre-Budget rumours that the Chancellor was considering reducing the threshold to £1.5m had been shut down before budget day.

The Valuation Office will conduct a targeted valuation exercise to identify the properties in scope. Local authorities will collect the charge on behalf of central government, alongside existing Council Tax.

The Valuation Office's exercise will place the properties within one of four bands:

Who is liable? In the response to the technical consultation that the government confirmed that (for administrative ease) it will be the legal owner, rather than the occupier or beneficial owner, that will generally be liable for HVCTS.

Deferral scheme: A deferral scheme can operate for those who fall within any of the following:

• Annual household income is £35,000 or less;
• Capital savings are £16,000 or less; or
• Where a member of the household meets disability criteria.

The HVCTS will take effect from April 2028.

Budget 2026 included a couple of noteworthy changes affecting stamp duty land tax (SDLT).

Changes to SDLT Group Relief

Under existing rules, if a company has purchased property from another company within its group and then left the group within three years, group relief is subject to claw back (i.e. the SDLT 'saved' by group relief becomes payable).

However, a 'loophole' in the legislation (exposed in the HC-One No 1 Limited v HMRC [2026] UKFTT 678 (TC) case) meant that if the seller company had been wound up in the interim, the claw back mechanism did not operate.

The government has now closed this 'loophole', ensuring that a seller company's winding up, irrespective of whether it is part of a genuine commercial arrangement, does not prevent relief from being withdrawn where the purchaser leaves the group within the usual three-year window.

Local Government Pension Scheme Relief

The government is introducing legislation with immediate effect to provide SDLT relief for acquisitions of land and property made by Local Government Pension Scheme (LGPS) asset pool companies from LGPS member funds.

Prior to this change, intra-LGPS transfers attracted an SDLT charge in the ordinary way, creating a friction cost on the pooling of assets. The government has acknowledged that this impeded the policy aim of consolidating LGPS investments and has introduced an SDLT relief to remove the cost. SDLT rules remain unchanged for other pension scheme transactions or third-party acquisitions.

The relief will apply to transactions with an effective date on or after 28 October 2026 and before 1 April 2032. The time-period for the relief is intended to facilitate and coincide with the pooling programme.

The Budget announced an anticipated (following a 2026 consultation) introduction of a zero rate of VAT on the sale of land to registered social housing providers.

Under current law, the earliest point in which a landowner/developer can zero rate a supply of land is often at 'golden brick' stage (where the construction is above foundation level); otherwise the sale of such land will either be exempt (with no VAT recovery available) or charged at the standard rate (where the person disposing of the land has opted to tax the land). As a result, under current law, the land must often be developed to 'golden brick' stage before a sale to ensure that no irrecoverable VAT arises. This can be difficult commercially and acts as a drag on transactions in an area where the clear policy objective is to build more homes.

Under the amended rules, the sale of land at any stage (i.e. pre- or post-'golden brick') will be zero rated. The purpose is to enable registered housing providers to take title earlier, which should unlock grant funding sooner, and 'do away' with the commercially inefficient golden-brick planning in certain situations.

The measure will take effect from 1 April 2027.

The reforms are welcome but are unlikely to be perfect. For example, announcing that the rules take effect only from 1 April 2027 could delay transactions currently in train. Additionally, the relief will only apply where the sale is to a registered social housing provider (a relevant Housing Association), which is currently undefined but is expected to be narrowly drawn. As usual, the devil will be in the detail with draft legislation expected in early 2027.

Autumn Budget 2025 introduced lower business rates multipliers for qualifying retail, hospitality and leisure (RHL) businesses. The government has now announced further measures to reduce business rates:

• An extra 20% relief for pubs, music venues and social clubs from 1 April 2027; 
• Increasing the Small Business Rate Relief (SBRR) threshold to £18,000 for 100% relief (from £12,000) and £21,000 for tapered relief (from £15,000) for qualifying RHL properties in England from April 2027;
• For all qualifying RHL properties in England, rates will be frozen in 2027-2028 and 2028-2029 so that no property in those sectors faces an above-inflation increase.

The government intends to pay for these reliefs partly through extending the VAT Online Marketplace Liability rules to UK business sellers on digital platforms (from October 2027), the clear message being that online sellers should fund cuts for their high street counterparts. Meanwhile, the increase of Machine Games Duty for higher-stake machines is described as funding the freezing of business rates for RHL properties. 

For more analysis of both the extension of the Online Marketplace Liability rules, and the changes to Gaming Duties, see our commentary: Business Taxes]

The government's projection is that, as result of these measures, half of all RHL properties in England will pay no business rates at all and a further 110,000 will see their bills reduced. Mayors and local authorities are set to receive a share of business rates income as part of the wider devolution rhetoric (from April 2027).

The ATED annual charge will rise by 3.5% for the 2027-28 charging period, in line with the September 2026 Consumer Price Index (CPI).

ATED is an annual tax that arises where a property constituting a "dwellingand valued at more than £500,000 (for returns from 2016-2017 onwards), is owned completely or partly by a company, partnership where any of the partners is a company, or a collective investment scheme.

Alongside Budget 2026, HMRC has published a corporate report titled "Modernising HMRC’s approach to wealthy compliance".

The Report sets out HMRC's ambitions for greater automatic exchange of tax information with other global tax authorities, including via participation in the OECD's Framework for the Automatic Exchange of Readily Available Information on Immovable Property (published in October 2025).

Participation in the OECD Framework would require the UK to automatically share information available to them on the holdings and transfers of UK property with partner jurisdictions, who would then share their equivalent data in return.

The commitment mirrors the UK's adoption of similar OECD frameworks including, the Common Reporting Standard (CRS) and, since earlier in 2026, the Crypto-Asset Reporting Framework. This reflects government intention to increase financial and tax transparency as a mechanism to better target abusive tax arrangements and profit shifting.